DBRS Ratings GmbH (Morningstar DBRS) has upgraded the Republic of Cyprus' (Cyprus) Long-Term Foreign and Local Currency - Issuer Ratings from A (low) to "A" and changed the trend from Positive to Stable. At the same time, it confirmed Cyprus' Short-Term Foreign and Local Currency - Issuer Ratings at R-1 (low). The trend on all Short-Term ratings remains Stable.
Morningstar DBRS said in a press release late on 19 September that ‘the upgrade reflects the sharp decrease of the public debt burden in recent years and Morningstar DBRS' expectation that public debt metrics will continue to materially improve over the next few years.’ It further noted that ‘general government debt decreased to 64.3% of GDP in March 2025 from 96.5% in December 2021, driven by large budgetary surpluses and high rates of nominal GDP growth on the back of strong domestic demand and rising service sector exports.’
Looking ahead, Morningstar DBRS noted that it expected the public debt-to-GDP ratio to remain on a firm downward trend as the government budget is likely to continue to register large surpluses and the economic outlook remains favourable. ‘Fiscal accounts benefit not only from cyclical tailwinds but also from structural improvements on the revenue side, such as the upswing in corporate income tax revenues due to the relocation of several companies to Cyprus,’ it pointed out.
‘The government's Annual Progress Report from April 2025 forecasts the general government's annual budget surplus at 3.5% of GDP in 2025 and at 3.7% in 2026-2028. Taking into account these large fiscal surpluses, general government debt is projected to decrease to 43.3% of GDP in 2028. The credit rating action is supported by an improvement in the "Debt and Liquidity" building block,’ the press release added.
‘The Stable trend reflects Morningstar DBRS' view that the risks to the credit ratings are balanced. Cyprus' ratings are supported by a stable political environment, the strong financial condition of the domestic banking sector, the government's sound fiscal and economic policies in recent years, and a moderate interest burden,’ Morningstar DBRS said. Furthermore, although governance indicators have weakened over the past years, Morningstar DBRS noted that it continued to view the country's EU membership as an important anchor for institutional quality.
‘On the other hand, the credit ratings of Cyprus continue to be constrained by the small size of its service-driven economy, which renders it vulnerable to external shocks, the economy's still comparatively low level of labour productivity, and the large current account deficit of the non-SPE economy, the press release concluded.
FinMin hails new DBRS upgrade of Cyprus economy
Morningstar DBRS' fresh upgrade of Cyprus' credit rating confirms the rational economic policy followed by the government, which is based on fiscal discipline and development approaches, as well as the resilience of the economy in an international environment full of challenges and uncertainties, Finance Minister Makis Keravnos said on Saturday, 20 September in a written statement.
He noted that this is the second upgrade by DBRS in 2025 demonstrating the confidence that the international rating agencies continue to show in the economic policy followed by the government.
Keravnos points out in his written statement that these upgrades lead to an environment of trust and stability in order to attract foreign investment as well as to the strengthening of growth, competitiveness and job creation.
He assures that the government will continue to implement sound economic policies based on fiscal discipline, which will allow for security conditions in the economy and will contribute to the implementation of a social policy that supports vulnerable groups and lowers classes.
What the DBRS rating says
The Ministry of Finance also issued a separate announcement citing what the international agency says in its report, in which it upgraded Cyprus' credit rating from "A (Low)" to "A" and revised the outlook from "positive" to "stable".
According to the Ministry, the agency justifies its decision on the sharp reduction in public debt in recent years and the expectation that public debt indicators will continue to improve significantly, in the coming years.
The General Government debt ratio to GDP decreased from 96.5% in December 2021 to 64.3% in March 2025, due to large fiscal surpluses and high nominal GDP growth rates, which stem from strong domestic demand and increasing exports of the service sector.
The Finance Ministry says that looking ahead, the agency expects the public debt-to-GDP ratio to remain on a steady downward trend, as the state budget is likely to continue to record large surpluses and the economic outlook remains favorable.
It added that fiscal outcomes benefit not only from cyclical favorable factors, but also from structural improvements in revenues, such as the increase in income tax revenues mainly due to the relocation of several companies to Cyprus.
The government's annual progress report in April 2025 projects the annual general government budget surplus at 3.5% of GDP in 2025 and 3.7% in the period 2026-2028, the Ministry said.
Taking into account these large fiscal surpluses, the general government debt is projected to decline to 43.3% of GDP in 2028, the Ministry further said, citing DBRS.
The Ministry also said that the revision of the outlook to “stable” reflects the agency’s view that risk remains broadly balanced. Cyprus’ ratings are supported by a stable political environment, the strong financial position of the domestic banking sector, the government’s prudent fiscal and economic policies in recent years, as well as the moderate interest burden, it said.
Furthermore, although governance indicators have weakened in recent years, the Ministry of Finance noted that DBRS continues to view the country’s EU accession as an important foundation for the quality of its institutions.
On the other hand, it says, Cyprus' credit ratings continue to be constrained by the small size of its service-based economy, which makes it vulnerable to external shocks, the economy's comparatively low level of labour productivity, and the significant current account deficit.
(Source: CNA)
